Top 10 States for Residential Solar—Fall 2013

How does one decide which states are the best for rooftop solar? There’s a plethora of considerations. In terms of overall solar irradiation, the answer is clear: Arizona. It gets more sun than any other state. In terms of capacity already installed on residences, California has the most and New Jersey has the second most. In terms of the cost of electricity, solar makes the most sense in Hawaii, which has the nation’s highest energy costs. But different states have very different incentives skewing the answer for which states truly offer homeowners the best return on their solar investment. But it’s a rapidly-changing target since programs change, get fully subscribed, or new legislation or regulations are enacted. And as a state’s solar incentive program gets filled for a year or even multiple years—like California’s, other state’s incentive programs rise up on the list.

Luckily there are a number of organizations, such as Nerd Wallet and Solar Power Rocks, that rank the best states for solar. Both sites compiled the large quantities of data related to energy prices, solar incentives, solar policies (like renewable energy portfolios and carve-outs for solar), net-metering policies, solar renewable energy credits (SRECs), payback rates, state and local rebates, tax credits and other factors. Solar Power Rock’s site offers a much more in-depth explanation of the reasoning behind their evaluations. But it made its rankings based on a host of factors. The most important factor for the homeowner though, is payback time or return on investment. The shorter the payback, the better for the homeowner. Therefore, in this particular ranking, the states with the shortest payback period and the highest energy prices top the list.

An important factor in going solar in any of these states is third-party ownership (TPO). In states that allow TPO arrangements, the impact of going solar is often nullified since a power-purchase agreement (PPA) or solar lease can allow a homeowner to go solar without having to fork out the $25,000 or more up-front for a 5 kilowatt array. In such states TPO options are designed to be equal to or less than the amount homeowners are paying for electricity from their utility when their system starts producing solar power. They are also often designed to save homeowners more as electricity prices creep up in subsequent years. To find out whether TPOs are available in your area, contact a local solar installer.

The following is a run-down of which states are the best for solar in terms of payback time:

1. Hawaii: Hawaii has the nation’s highest electricity costs at an average of 36 cents per kilowatt hour—that’s more than triple of Louisiana, which shares the nation’s lowest electricity costs with Tennessee, both of which average 8 cents per kilowatt hour. That high cost of electricity is because most of Hawaii’s energy is imported from the U.S. mainland in the form of diesel, which is used in generators on the state’s island. That high rate of electricity means solar is a winning proposition there, with a four-to-five year return on investment—shorter than some car leases. The state also has strong solar incentives, including a 35 percent state tax credit up to $5,000. The state also has the nation’s highest overall renewable portfolio standard (RPS) requiring its utilities to source 40 percent of their electricity from renewable sources by 2030.

2. Delaware: Delaware, the first state and the tax-free state, also carries a five-year payback period for going solar. That’s despite having much lower electric costs that average about 14 cents per kilowatt hour. The state offers tiered rebates for residential systems. For each kilowatt (up to 5 kilowatts) homeowners are eligible for a $1,250 rebate ($6,250 for a 5 kilowatt array). For the next 5 kilowatts, homeowners are eligible for a $750 rebate. In all, a 10 kilowatt array would qualify for a $10,000 rebate. The state’s renewables efforts are also bolstered a 25 percent renewable portfolio standard by 2026.

In Delaware, a 5 kilowatt array will cost about $10,518 after the first year, according to Solar Power Rocks. The system will save the homeowner about $66 a month in energy costs and, acocrding to NerdWallet, the average electric bill in the state is around $132.80 a month.

3. Washington, D.C.: Washington, D.C. isn’t technically a state, but perhaps more of a state of mind. That doesn’t stop it from making the list, however. Like Hawaii and Delaware, D.C. has a five-year payback period for going solar. That’s despite having a relatively low cost of electricity at 12 cents per kilowatt hour. The Capitol city offers a healthy rebate of $1,500 per kilowatt for the first 3 kilowatts, $1,000 per kilowatt between 4 and 10 kilowatts and $500 per kilowatt for kilowatts between 11 and 20. A 5 kilowatt array would qualify for a $6,500 rebate and a 20 kilowatt array a maximum of $15,500 in rebates. In addition, D.C. has a strong solar renewable energy credit market, with SRECs maxing out at $500 but averaging $320 per SREC in 2012—about $1,800 a year for a 5 kilowatt array. The district’s solar rooftops program is bolstered by a 2.5 percent carve-out for distributed solar generation as part of its 20 percent by 2023 RPS.

4. Connecticut: Connecticut has the nation’s second-highest average energy prices at 19 cents per kilowatt hour. Those high prices and Connecticut’s solar incentives mean that homeowners can recoup their investment in solar in about six years. Connecticut offers either a rebate or the opportunity to renewable energy credits produced by a solar array. The REC payments are low in the state—about $55 per credit and are expected to remain low for a while. Since it’s a market-based solution the price can go up or down. On the other hand, the state also has generous solar rebates thanks to the Connecticut Clean Energy Fund and the Clean Energy Finance Authority (CEFIA), which is tasked with supporting 30 new megawatts of residential solar by 2023. For systems up to 5 kilowatts homeowners can get a rebate of $2,450 per kilowatt—that’s $12,250 for a 5 kilowatt array. For systems between 5 and 10 kilowatts, the state offers a rebate of $1,250 per kilowatt, maxing out at $18,500.

5. New York: New York, home of the Big Apple, is in the middle of the list this year. The state’s electric prices are higher than many states at about 16 cents per kilowatt hour, and a solar array pays for itself in about six years. The state has continued to bolster its residential solar offerings. A 5 kilowatt system in New York qualifies for an $8,750 state rebate and a 25 percent state tax credit (which caps out at 5 kW) or $5,000. That’s $13,750 off the price alone. In all, a 5 kilowatt array in New York carries an out-of-pocket cost of $5,455 after the first year—or $10,455 before the state tax rebate. However, the state doesn’t have an SREC market. Solar Power Rocks said the average electric bill savings is $77 a month. Nerd Wallet said the average electric bill in the state is $111.60 a month.

6. North Carolina: North Carolina has a lower cost of electricity than many other states on this list at 10 cents per kilowatt hour. Yet the state still has an estimated six year payback period for going solar. The North Carolina system is a bit hinky compared to most other states on the list. It doesn’t have a strong RPS or mandated rebate program across the state. “For now only customers of Progress Energy are eligible for a rebate. If you’re one of them, you can get a rebate of $1,000/kw on the installation of your solar power system, as well as a credit of $4.50/kw on every monthly bill,” according to Solar Power Rocks. However, the state does allow homeowners to take a 35 percent tax credit on a solar array up to $10,500. The state also has SRECs, which are solar through NC Green Power. Homeowners selling their SRECs need to sign an agreement with NC Green Power and their utility to sell them, however. For every kilowatt hour generated, NC Green Power pays 10 cents and the utility pays about 4 cents. Together that’s more than the cost of electricity in the state at 14 cents per kilowatt hour.

7. Massachusetts: As of fall 2013, a solar array in Massachusetts will take about seven years to make a return on investment in Solar Power Rocks’ ratings. However, with new a renewed renewable effort announced by Gov. Deval Patrick (D) earlier this year, that payback period could shrink to five years soon. At 15 cents per kilowatt hour, the state’s electric costs are slightly higher than the national average of 11 cents per kilowatt hour. Patrick announced that the state would expand its solar energy target after meeting its 250 megawatts solar target four four years early. Now the state is targeting 1.6 gigawatts of solar. Massachusetts’ PV rebate is a little complicated since it includes an income provision. The rebate maxes out at $20,000. The base incentive is $750 per kilowatt up to 5 kilowatts or $3,750. There’s an additional $850 per kilowatt for households making less than 120 percent of median income in the state, totaling $8,000 for a 5 kilowatt array. In addition, Massachusetts offers a $100 per kilowatt rebate for locally produced PV and inverters. The state also has a strong SREC program with long-term pricing and a floor price of $285 per credit. If a utility isn’t purchasing enough SRECs they pay the state $600 per missed SREC purchase.

Solar Power Rocks reveals the average 5 kilowatt array is $5.30 per watt in Massachusetts, costing about $12,025 out-of-pocket after all rebates and incentives are considered. That’s the price of a small car. Massachusetts also offers long-term pricing for SRECs, which few if any states offer, an important factor in choosing to go solar. Solar Power Rocks also said such a system should shave about $75 a month off the average electric bill in the state. NerdWallet found the average monthly bill in the state is $92.90.

8. Maryland: Maryland also has an average electric price of about 15 cents per kilowatt and at eighth place on the list, it also carries an average eight-year payback period. The state offers a grant of $1,000 for a solar system but does not offer a rebate. However, the state does have a decent SREC market with prices that ranged between $190 and 280 per SREC generated (1 megawatt hour) in 2012. Maryland has a theoretical SREC maximum of $400 per SREC. After all rebates, incentives and the first year of solar renewable energy credits are considered, the average out-of pocket costs for a 5 kilowatt system would be about $14,753. At the same time, a system that size would cut about $73 off the monthly bill, which NerdWallet put at $137.20 per month in the state.

9. South Carolina: The Palmetto State has a payback period of eight years for a solar array. The cost of electricity is just a bit above the national average at 12 cents per kilowatt hour. The state has a tax credit that allows homeowners to take 25 percent of the costs of a solar array off of their taxes. But they can only claim $3,500 in any given year. However, they can claim the credit over a period of 10 years. The state also has the Palmetto Clean Energy (PaCE) Program, akin to an SREC market. The program pays about 10 cents for every kilowatt hour of solar electricity produced by systems under 6 kilowatts. The average system would cost about $12,163 after all rebates and incentives are included, according to Solar Power Rocks. It would reduce monthly electric bills by about $64. That’s nearly cutting the average $135 electric bill in half.

10. Louisiana: Rounding off the top 10 in 2013 is the old boot, Louisiana. The state has some of the lowest electric costs in the nation at 8 cents per kilowatt hour. However, thanks to the incentives, the solar payback period is about eight years. Chief among the incentives is Louisiana's solar tax credit, which allows homeowners to deduct 50 percent of the cost of an array from their state taxes up to $12,500. The tax credit is on a per system basis. So if a home has more than one meter, it could qualify for multiple tax exemptions. With the solar tax credit, the cost of a 5 kilowatt array in the state is about $12,500, Solar Power Rocks said. Average monthly utility savings with a solar array is $42 a month. Despite having low energy costs, the average electric bill in the state is $120 a month, according to NerdWallet.

11. Eleven and beyond. Just because a state didn’t make the list this year doesn’t mean investing in solar is a mistake. Many of the nation’s leading solar states like California, Colorado and Arizona have an approximate 10-year payback period. But solar doesn’t have to have an up-front cost anymore. In virtually all of the U.S. states on this list (and some not on the list) people can have solar installed without paying anything out of pocket thanks to third-party financing (TPO) companies.

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